This study develops a two-stage market channel model to analyze pricing in the Boston milk market where retailers are differentiated sellers. A nonlinear model of demand and costs, including firm specific and industry cost shift variables is estimated for each of the four leading supermarkets. Cost pass through rates for industry wide shifts are near 100%; for firm specific costs they range between 32 and 47 percent, suggesting that substantial differentiation and related market power. A test for focal point collusion finds that channel firms elevated retail prices when the Northeast Dairy Compact elevated and stabilized raw milk prices.

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Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number
067.

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